We construct a two-factor pricing model for contingent convertible bonds having a conversion to equity loss absorption mechanism, triggered by the event of the issuer’s Tier 1 ratio falling below a pre-determined level. The two stochastic factors are the issuer’s equity price and Tier 1...

How do people understand business-cycle comovements of macro-finance variables? I develop an empirical and theoretical framework to investigate people’s mental models, extending the univariate Coibion and Gorodnichenko (2015) regression to address multivariate relations. Forecast revisions of...

This paper employs data on corporate bond mutual fund flows to investigate bond investments under low interest rates. In response to the Fed’s lower interest rate policy, we find that investment-grade bond funds receive inflows, while high-yield bond funds are not responsive. This result can...

We introduce the log-normal stochastic volatility (SV) model for the dynamics of a short interest rate in the Cheyette model. We assume non-zero correlation between the dynamics of the short rate and the log-normal SV driver for modelling positive implied volatility skews observed in...

In 2008, first suspicions arose that the London Interbank Offered Rate (LIBOR) had been systematically manipulated by financial institutions involved with its fixing; in June 2012, several major international banks officially admitted to this. The regulatory response could not have been...

I propose a consumption-based asset pricing model in which the decision maker prices contingent cash flows realized at different future horizons and exposed to multiple shocks. The decision maker ignores the objective probability generating the data, and she evaluates a set of models that is...

We combine modern methods from Speech Emotion Recognition and Natural Language Processing with high-frequency financial data to analyze how the vocal emotions and language of ECB President Mario Draghi affect the yield curve of major euro area economies. Vocal emotions significantly impact the...

This paper introduces a unified factor overnight GARCH-Itô Models model for large volatility matrix estimation and prediction. To account for whole-day market dynamics, the proposed model has two different instantaneous factor volatility processes for the open-to-close and close-to-open...